China estimate of the day

But because of the way trade deficits are measured, almost all the value of those components is attributed to China, which exports the final product. Reuters reports that 61 million iPhones were shipped from China to the US in 2017 and suggests that just a single phone—the iPhone 7 model, released in 2016 and on sale for all of last year—accounted for $15.7 billion of the trade deficit, or 4.4%.

Louis Kuijs, head of Asia economics research at Oxford Economics, told Reuters if trade deficits were measured to account for the complex nature of global supply chains like the ones used by sophisticated consumer products like smartphones, the US-China trade deficit would be about 36% lower, or $239 billion.

That is from Allison Schraeger.

Comments

interesting!

http://www.kelasekonomika.blogspot.com

Simple solution. Mandate that the iphones be made in the U.S. Pass a law requiring that all nations that we trade with buy as much of our products as we buy of theirs. Trade deficits are an obvious indication that free trade is a myth.

I don't think the term trade deficit means what you think it does.

Seems silly to even trade, why not have the U.S. make everything we need? We have plenty of people and capital after all.

And build walls around west coast ports.

Or to phrase it in another fashion, the US - other countries trade deficit would be about 36% higher.

Basically nothing would change in the fact that U.S. is a country unable to manufacture Iphones.

(And related - this does not seem to reached trade war status - 'Earlier this month, the Committee on Foreign Investment in the United States, which reviews the national security implications of foreign investments in U.S. companies, cited concerns about the proposed Broadcom-Qualcomm marriage.

If the bid had gone through, Broadcom’s penchant for cutting costs such as research spending could have resulted in Qualcomm losing its leadership in telecom technologies, the committee warned.

In addition, lawmakers have expressed concerns in the past about foreign companies gaining a foothold in U.S. telecom infrastructure, which could lead to spying or cybertheft.' https://www.washingtonpost.com/business/technology/broadcom-officially-drops-qualcomm-bid-after-trump-decision/2018/03/14/3c8767ca-2780-11e8-a227-fd2b009466bc_story.html )

no

No what`

That the U.S. can not build Iphones without imports (neither can China, of course, even if the imports are from somewhere like South Korea), or that the U.S. just blocked a 117 billion dollar deal on national security grounds?

Obviously we need a strategic iPhone reserve.

"Basically nothing would change in the fact that U.S. is a country unable to manufacture Iphones."

Yes, the US can only design them. Unlike Germany, which can neither manufacture nor design them. (PS I really don't have anything against Germany, I'm just counter-trolling prior's idiocy)

"Apple Inc. is designing and producing its own device displays for the first time, using a secret manufacturing facility near its California headquarters to make small numbers of the screens for testing purposes, according to people familiar with the situation."

https://www.bloomberg.com/news/articles/2018-03-19/apple-is-said-to-develop-displays-to-replace-samsung-screens

It's almost like you read the news and say the opposite.

From the linked article: "Trade is no longer about relying on cheap labor in one country, it takes many countries diverse skills and resources to make technology like the iPhone accessible." Would those "diverse skills and resources to make the iPhone accessible" include the intellectual property rights Apple has in the file drawer in a tax haven? Complex sourcing and accounting practices aren't just for companies like Apple but countries like China too, which render trade deficit figures misleading at best, fraudulent if the practices are viewed in light of the participants' intent to mislead.

Money is a proxy for labor, work.

All trade is about trading work.

Where is the work associated with iPhone rents/profits from patents/brand?

Note the absurd free lunch ecomomics about Apple "exports", profits, taxes:

Apple has a hundred billion in profits from exporting US Apple IP to the world, but they can't bring the profits back to the US to create jobs because of the high taxes on profits.

Except, if Apple actually paid an extra $100 billion to workers over the period of the $100 billion in export profits, that would be tax deductible against profits, reducing profits to zero, and a 1000% profits tax on $0 profits would cost $0 In taxes, so a 35% tax on profits prevents zero jobs being created by bringing back "profits" to pay US workers.

Note, while investment is not a tax expense in most cases, depreciation is a tax expense, and if lots of workers are paid to build investments, the capital built is probably depreciating very rapidly. Ie, the investment in the iPhone 7 has no value once the 8 or 9 replaces all sales of the 7. Ie, if the 7 cost $10 billion to produce but is sold only for 2 years, the capital expense for year one is $5-7 billion and 100% of the remainder is expensed in year two.

Given tax dodges granted to R&D to promote invention and innovation, most tech investment is 100% tax dodge, so Apple paying $100 billion more on invention and innovation would mean zero taxable profit.

Thus, Apple is not paying workers with profits, especially if profits are taxed at zero percent.

Apple wants zero taxes on profits PLUS GREATER GOBVERNMENT GRANTED MONOPOLY POOWER TO EXTRACT RENTS.

Trump, likewise, wants much higher monopoly power rent extraction, and is outraged that China does not promote rent extraction, but instead promotes paying 100% or more of revenue to workers.

Trump promotes free lunch economics of creating jobs by NOT paying workers.

China promotes Keynisan economics of creating jobs by having zero economic rents and profits, ie, every dollar of revenue paid to workers.

China is cheating in Trump's view because it will not pay high profits to the US for no work done by the US, based on the US deserving rents on all work done in China by Chinese workers.

Again, it comes back to first principles. Money is work by proxy. Economists before Reagan universally believed not paying workers every penny of revenue was impossible.

So Trump has only been in office for 14 months and the trade deficit has plummeted. I’m not tired of all the winning yet!

" the US-China trade deficit would be about 36% lower, or $239 billion."

Well if trade deficit's don't matter this is irrelevant; And if they do, that's a very high number. Roughly $700 per capita per year.

"the iPhone 7 model, released in 2016 and on sale for all of last year—accounted for $15.7 billion of the trade deficit, or 4.4%."

Who cares as long as the rich gets richer? The immiseration of the overwhelming majority of the American people is not a bug, it is a feature of the American system. The financial-governmental complex enslaves the American people.

China is mercantilist, protectionist nation governed strictly by the Chinese Communist Party. The People's Bank of China maintains tight control over monetary policy, and central planning rules all.

They are booming!

Maybe they need to listen to Western macroeconomists.

Was this after Deng Xiaoping allowed the private sector to start and run businesses?

China does have central planning on the order of 5+ years which is quite easy when you have a dictator for life and needn't be bothered pesky things like public opinion, unions, elections, and you use tanks against protestors. Not to mention numerous SOE's that are tightly integrated with the state and the Communist Party.

With all that said it wasn't China that forced western capitalists to offshore most of the west's manufacturing capability and gave up western secrets and IP just to make a fortune for themselves and give the rest of us unemployment and cheap chinese trinkets.

What unemployment?

Yeah, the US doesn't have much unemployment today. I suspect that Chinese trade has depressed US wages in competing industries, and obviously driven a few companies out of business. But the US has a competitive economy and people can find other jobs relatively quickly.

It's a complex situation with both a good side and a bad side.

You know what Mercantilist means, right? It is not Enver Hoxha's socialism.

China's economy is still more closed than the average Latin American country's. Standard economic theory predicts fire and brimsrone for such a country. Yet, Red China's totalitarian regime thrives - at the expense of Western democracies.

" Standard economic theory predicts fire and brimsrone for such a country."

You know Thiago has a point here. Nor does Germany and Japan seem to suffer from having relatively high mercantilist outcomes. By that I mean, they tend to culturally eschew foreign products and buy their own.

And yet for decades we've heard economists criticize Buy American campaigns. I read at least one economist that roundly criticized the Walmart Buy American campaign. It wasn't a legal requirement, it was just a company policy and advertising campaign.

China is not booming; it’s GDP per capita is less than a sixth of ours. Sure, it has a high growth rate, but it’s easier to grow when you’re poor to begin with. Would you rather have a high income or a fast-growing one? China is actually growing slower than other Asian tigers when they were at the same level of income.

Many Americans have looked to authoritarian countries like the USSR playing catch-up with awe, and all ended up looking foolish when those countries stalled out. The last Asian mercantilist power Japan has now had a generation of no growth and an income level a third below Western free trade countries. Every economy in the world today that sustain US-level incomes is capitalist and highly open to global trade.

"The last Asian mercantilist power Japan has now had a generation of no growth and an income level a third below Western free trade countries."

This seems to be wrong. Japan's GDP per capita is 10th of 34 on the list of OECD countries. It's above the UK, France and Germany. Granted, according to the PPP chart it drops to just below the median point.

https://en.wikipedia.org/wiki/List_of_OECD_countries_by_GDP_per_capita

And it hasn't had a "generation of no growth". GDP per capita has gone up substantially over the last 10 years.

https://tradingeconomics.com/japan/gdp-per-capita-ppp

"China is mercantilist, protectionist nation governed strictly by the Chinese Communist Party"

But China runs essentially no trade surplus, trading more work to the US to get more work from other nations that trade more work from the US.

Why hasn't Trump imposed 25% tariffs, or better yet, 100% tariffs on imported oil?

China sells more worker produced goods to the US than it buys from the US to pay for more labor saving oil imports, which must mean the oil represents worker production equal to the price paid.

If oil is not work, then buying oil with work that is not produced with work is a free lunch. Everyone should stop working, and simply sell oil. If only, the Saudis have oil that requires no work, then Saudi Arabia should export so much oil by cutting the price so it takes 100% of the market. After all, oil requires no work, and thus must be in infinite supply.

Or to put it another way, Saudi Arabia is the mercantilist nation, and China is the Adam Smith ideal.

Trump is, likewise, a mercantilist.

Make no mistake: China's and Japan's regimes are cancer. It is time for radiotherapy.

Employing workers to produce wealth is a cancer? So, wealth must be created without working by extracting rents?

Everyone should be like Trump, getting lots of money without working simply by putting their name on stuff built by other workers and owned by other workers, and bought by other workers?

The point is, they are not just making money, they are arming themselves against you and me. They are hostile powers. As bad as it is, Chinese-generated unemployment is the least of the problems. They want to destroy us. The West would be justified in nuking Japan and Red China back to Stone Age. How can Americans not undertand. Time is of essence!!

Yes! I was looking forward to these two getting into it. It's like watching 2 gorillas trying to play Pac-Man.

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